Claremont mulls floating a bond to purchase assets of Golden State Water Company

CLAREMONT - Claremont would need to float a bond - costing perhaps $80 million - to buy Golden State Water Company's system in the city, and although residents would not see lower rates immediately, they may eventually once initial costs are paid down, said Councilman Sam Pedroza.

"We understand there is a cost of providing water. We just don't agree with the rate of those increases," Pedroza said.

Golden State Water Co. is in a pitched battle with customers in Claremont, Barstow and Apple Valley and other Southern California communities over large rate hikes after the company's parent, San Dimas-based American States Water Co., posted a net income of $15.1 million for the third quarter ending June 30.

The privately owned water company attributed $300,000 in recent profits to new rate increases.

Claremont continues considering buying out Golden State and running its own utility, according to Brian Bowcock, a member of the Three Valleys Municipal Water District board. The price could be as high as $80 million, Pedroza said.

An appraisal of Golden State Water within Claremont will be available for the City Council in October, said City Manager Tony Ramos.

On Thursday, the city sent out a news release about Gov. Jerry Brown's having signed legislation imposing stricter auditing requirements and notification standards on water companies.

The city supported Senate Bill 1364, which was drafted by Senate Republican Leader Bob Huff, R-Walnut, because officials believe it will help them fight the water company's rate increases.

The bill, according to the release, seeks to ensure that ratepayers who are served by private water companies are not asked to pay more for the same service than a ratepayer served by a public agency without a clear understanding of the associated costs.

Golden State has defended its rate increases, saying they have been approved by the state Public Utilities Commission.

Some of the money raised goes toward capital improvements. "Golden State Water Co.'s rates reflect only the cost to provide the service and maintain the water system," company spokesman Mitch Zak said.

Bowcock is in favor of the city's plan to take over the water company.

He says Claremont water rates are 84 percent higher than La Verne's. He said the only reason for that is the dividends Golden State must pay to shareholders.

"If I were starting a new city today, I would go with a public entity rather than a private water company because of the profit margins they are looking for," Bowcock said.

Most water agencies depend on customer sales for 80 percent of their revenues, said Sanjay Gaur, senior manager of Raftelis, a Pasadena-based financial consulting firm hired by public-private water agencies.

And retail water agencies can't raise property taxes so they raise water rates or add stand-by charges to meet expenditures.

The bigger problem is aging infrastructure. Experts at the U.S. Environmental Protection Agency say cities older than 50 years, like most in eastern Los Angeles County, are entering the era of replacement as water systems deteriorate, Gaur said. The cost for new pipes, pumps and reservoirs will hit ratepayers' wallets hard.

Gaur said public utilities do a better job of keeping rates lower, because they are local and accountable to residents. But often, public utilities practice deferred maintenance, only to experience major repairs 30 years later.

"Yes, public agencies keep costs lower than private but is that right? The public is mining the system. Then in 10 years you have a huge liability," Gaur said.

Reggie Lamson is general manager of the Big Bear Lake Department of Water and Power, which provides water service to nearly 16,000 customers in and around the Bear Bear Valley.

He said that water system was purchased through condemnation proceedings and a bond issue in 1989 from Southern California Water Co. - as Golden State Water Co. was then known.

The debt service for the bond has been refinanced and won't be paid off until 2022, Lamson said.

"We've got 10 years to go on the main bond we borrowed," Lamson said. "Our annual expenses are about $10 million. But the debt service is $4 million of the $10 million. Forty percent of operating expenses is paying off the debt service. That's the downside. But once it's paid off it will be great."

Lamson said the department has been fortunate to get low-interest loans and grants to upgrade the system and this summer they've added five miles of pipe and three new well pumping plants for almost $9 million.

The department has been able to acquire $2 million worth of grants and low-interest loans to help pay for the improvements, Lamson said.

"That's how we're making improvements," Lamson said.

Lamson said the department has received few complaints and customer bills are about $45 a month.

The agency previously running the system was Southern California Water Co., Lamson said.

"The system had become run down," Lamson said. "There were a number of outages and lots of leaks because they weren't investing the appropriate funds in the system to keep it from leaking. So the community went to the city and said, `Can you take this over?"'

The city eventually voted to do so, Lamson said, which led to an expensive condemnation process.

"They got their engineer to come up with a value. Then the city of Big Bear Lake hired an engineer. One said it's worth this and the other side said it's worth this much. Then we went to court. It's usually a two- to three-year process to go through the court system."

The bond used to take over the agency was about $35 million, of which about $28 million went to pay to SCWC and another $5 million was for immediate system improvements, Lamson said.

"It's not a thing for the lighthearted," Lamson said. "Not only to purchase the system but the attorney fees and the time it takes and the energy ... it's a very expensive, high-energy venture," Lamson said.

Lamson said that private water companies are usually awarded two to three times their value and SCWC was awarded $28 million.

"It's the value of the water system," Lamson said. "It accumulates assets over years and years and years.

"With Claremont, I'm not sure how old their system is. You figure anywhere from half a million (dollars) to a million per mile of pipeline in the ground. You can do the math. We have 178 miles, and we have a fairly small, rural water system."